Veteran investor Claude Lamoureux spoke at the April 24 Annual Pension Conference, sharing his experiences on investment management and governance during his speech to delegates. Lamoureux has a rich history in the Canadian pension space. In 1990, he was appointed first President and CEO of the Ontario Teachers’ Pension Plan (OTTP), and by the time he retired in 2007, OTTP was one of the world’s leading pension plans, with more than $100 billion in net assets and 250,000 plan members. He also cofounded the Canadian Coalition for Good Governance (CCGG) with financier Stephen Jarislowsky, and he continues to serve on the boards of directors of companies and non-profit organizations.

How and why was the CCGG founded?

It was not founded because big fund investors wanted to introduce more rules. It was because they wanted to improve performance. I was talking to Stephen Jarislowsky, and we wanted to do something about a company that was not performing well. Its board was not doing its job. So I said, why don’t we invite a group of investors and pension funds to form an organization that would worry about governance and only about governance—governance as a means to better performance.

Those were trying times, coming out of the tech bubble. The directors of certain companies were not doing their job. The directors were all very good, an all-star team, but they were playing like peewees.

The very first press release issued by the new coalition had difficult beginnings. To me, it was a revelation that only 50 percent of the large pension funds present wanted to put their name on the press release. Perhaps this was considered radical. You were the owner, and you wanted to exercise your right of ownership. But we did get that press release out, and we attracted other pension funds.

How is the CCGG different from the International Corporate Governance Network?

They are very different because the only members we allow are investors. That’s why I resigned from CCGG when I was no longer the head of the OTTP. Too many of the ICGN members are consultants—people who want to make money from investors. They have an academic interest, and that’s why they get so caught up with the rules. There is an offshoot called the Global Institutional Governance Network, which has a mission similar to the CCGG.

Once the CCGG was set up, what issues did you tackle, and how?

We discussed how to go about changing things such as the separation of Chair and CEO. Four of us decided to talk to the big banks one by one. Gord Nixon [CEO of Royal Bank of Canada] said he was glad not to be Chair: “I run the company; someone else runs the board.” In some cases, we said, “Maybe not now, but how about making the change when the current Chair and CEO move on?”

We weren’t the only ones with the idea. Probably a lot of the other boards were asking themselves the same question about separating Chair and CEO. Success has many fathers, but failure is an orphan.

This is not a religion. There might be instances where the Chair and the CEO should be the same. We might vote to have it continue. The main thing is that we start a conversation with these firms and we say, “We are here to help you perform.” As large investors, sometimes we own these companies. And when you can’t sell, you have to care.

What were some other issues you took on?

The accounting for options was awful. Plain vanilla options were not charged as an expense, only indexed options were. Again, we were not the only voice. Many corporations were against accounting for options. Papers had been written on this. You can’t beat people over the head; you have to work with them and be reasonable.

Income trusts did not have the same governance as corporations. Law firms were making millions doing conversions but the trusts had very little governance. For example, when Penn West converted into an income trust, that was deemed a change of control, so the employees all collected their options and their severance. We made a lot of noise about this. We tried to influence the board, but we were not successful. A better way was to approach the company and explain why we did not want them to be an income trust.¹

How did the CCGG encourage best practices to spread among Canadian companies?

David Beatty created a prize for the coalition, the Governance Gavel Awards. The CCGG has never been against corporations. We need them and want them to be successful. The awards banquet with the media was a way to get to know them. He started a program of visiting companies and talking about issues.

As a result of this, we had a lot of corporations that would come and visit large funds to discuss governance and, in particular, compensation. You have to sit down face to face to get real change. Change that is internally motivated is much better than change that is externally imposed.

How do you know good governance works?

A law firm in London, Eversheds, has published studies that show some correlation. In January 2014, a piece in The Economist compared Ontario Teachers’ with the New York pension funds. The New York boards are politically oriented, not business oriented. The Ontario fund returns were 1.5 percent higher. One main difference is good governance, which leads to good management.

How about board composition?

A good board makes a difference, but it’s hard to demonstrate. Eversheds shows that boards with women on them do better. Also, the board members must work well together. They must be knowledgeable and able to ask each other questions. More diverse boards are better too. Many corporations sell, or want to sell, internationally, but they do not have directors from outside Canada or North America.

¹ In January 2011, Penn West converted back from an in- come trust into an exploration and production company.